UK economic growth was sluggish in 2023, with a slight recession in H2 2023, as past shocks on producer costs and consumer prices coupled with tight monetary policy weighed on demand. Economic activity grew strongly in H1 2024 on expectations of monetary policy easing (which the Bank of England effectively started in August 2024), but growth is expected to slow going forward to an expected +0.3% QoQ in Q3 and Q4. Indeed, private consumption remains weak as households continue to be excessively cautious owing to past price shocks, high interest rates and the ongoing easing in the labour market. 

Growth is expected to accelerate slightly in 2025 with domestic demand being its main driver supported by still strong household real-income growth. Investment should also make a positive contribution to growth, the outlook being underpinned by an upward bias thanks to the pro-business, pro-investment policy of the Labour government. 

Inflation returned to the 2% target in May 2024 and has been volatile since then. After a plunge below target in September, it should rebound above target in Q4, on higher gas and electricity prices, but is expected to return to target by mid-2025. 

Consistent with expectations, the BoE began its monetary easing cycle in August with a 25bp cut and announced gradual rate cuts ahead. We expect one additional 25bp rate cut by the end of the year, in November, but a faster pace of cuts in 2025.